Flight to safe havens

By THIS IS MONEY
Updated:

 

The Daily Mail City team explains how the number of safe havens for cash have dwindled and why the US dollar has regained some of its sparkle.

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Time for an airlift?

If you're a bond investor, yes. This isn't literally a matter of taking to the skies, but rather scampering for safer governments.

In a sovereign debt crisis, investors will stow their cash in the most credit-worthy states. Right now, however, these safe havens are becoming trickier to find.

Why?

The entire eurozone has been plunged into a fiscal quagmire.

The costs of bailing out banks and propping up recession-hit countries have sent public debt through the roof.

The crisis has crystallised around Greece, whose previous government cooked the books to keep borrowing figures low.

As a result, investors are now yanking cash not only from Greek government bonds but also other eurozone sovereigns that are seen as fragile.

Where are the havens?

Countries in the euro straitjacket aren't a very alluring place to store savings right now.

Instead, the US dollar has regained some of its sparkle, as investors pour money into Treasuries - American government bonds.

Interestingly, the UK has also been a (modest) beneficiary, keeping the yield on gilts low.

There's no room for complacency, though. Our 12% budget deficit could quickly give haven-hogging investors a nasty case of indigestion.

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